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Sapsora Company uses ROI to measure the performance of its operating divisions and to reward division managers. A summary of the annual reports from two
Sapsora Company uses ROI to measure the performance of its operating divisions and to reward division managers. A summary of the annual reports from two divisions is shown as follows. The company's weighted average cost of capital is 11 percent. Total assets Current liabilities After-tax operating income ROI Division A $ 6,100,000 $ 550,000 $ 1,020,000 24% Division B $ 8,650,000 $ 1,800,000 $ 1,163,000 14% a. Which division is more profitable in absolute dollars? b. Compute the EVA for Division A and Division B. c. Suppose the manager of Division A was offered a one-year project that would increase his investment base by $250,000 and show a profit of $32,500. Would the manager be motivated to invest in the new project? Complete this question by entering your answers in the tabs below. Required A Required B Required C Which division is more profitable in absolute dollars? Which division is more profitable? Required A Required B > Complete this question by entering your answers in the tabs below. Required A Required B Required C Compute the EVA for Division A and Division B. EVA for Division A EVA for Division B Required A Required B Required C Suppose the manager of Division A was offered a one-year project that would increase his investment base by $250,000 and show a profit of $32,500. Would the manager be motivated to invest in the new project? Would the manager be motivated to invest in the new project?
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